Brokerage Reminder: Keeping offers a secret is a CalBRE violation

Some California real estate licensees still labor under the myth that the use of real estate forms published by the California Association of Realtors (CAR) trade union is a “best practice.” Some misguided licensees even believe that they are not allowed to do otherwise. Those who buy into the myth suffer unfavorable consequences.

Ignorance is bliss

Consider a buyer and their agent who locate a property meeting the buyer’s requirements. The agent prepares an offer for the buyer to sign and deliver to the seller’s agent. The offer is written on a form with provisions in full compliance with California law. However, the form is not published by CAR.

The seller’s agent, unhappy with the non-trade union form, refuses to submit the offer to their seller. The seller’s agent advises the buyer’s agent that if they want the offer presented, it will have to be prepared and submitted on CAR’s “standard” form. The buyer’s agent is an MLS-only member of their local board of realtors and has no access to online CAR forms.

In the interim, the seller’s agent receives an offer from a union member prepared on a CAR form from another equally qualified buyer. This offer is submitted to the seller, who accepts it.

Later, before escrow closes, the seller discovers the existence of the prior offer that their agent deliberately withheld. The seller had no idea a competing offer existed or they would have countered both of them. As a result, the seller cancels the broker fee instructions barring escrow from paying the agreed broker fee.

Here, the seller’s agent breached the fiduciary duties owed to their client by failing to advise their client, the seller, of the existence of an offer. The offer was never submitted to the seller for acceptance or rejection, a fundamental duty of a seller’s agent.

Furthermore, the conduct of the seller’s agent is an offense reportable to the Bureau of Real Estate (the Bureau). On receipt, the Bureau takes disciplinary action against the seller’s agent, and the seller’s agent’s broker, if warranted.

A reportable offense

A broker or agent may not independently exercise personal discretion to make determinations on their seller’s behalf. It is their client, the seller, who must decide whether their agent is to submit an offer, oral or written. Rejecting an offer without the seller’s consent, based on its form, rather than its substance, is an even worse transgression.

The failure to present all offers when received is comparable to lying to the seller about its existence, a type of fraud on the seller called deceit. The failure denies the seller the opportunity to consider and weigh all offers the agent has received, and better understand buyer demand in the market. [Simone v. McKee (1956) 142 CA2d 307]

As stated succinctly in the real estate digest, Miller and Starr Third Edition, “The [seller’s] broker must disclose to [their] principal-seller all offers that have been made by any person, whether the offer is only oral or in writing, and even though the seller has accepted another offer.” [Miller and Starr §3:27]

What’s more, the Bureau clearly states that seller’s agents, as fiduciaries, must present all offers received regardless of the form of the offer. This issue has been fermenting for some time. [See “Being an agent means never having to say you’re sorry,” DRE Real Estate Bulletin, Fall 2001, Page 12]

The disciplinary process

The Bureau investigates complaints against real estate licensees who are accused of misleading or defrauding consumers. If a violation of the real estate license laws falls within the Bureau’s jurisdiction, the Bureau may hold a formal hearing. This hearing ultimately determines whether the agent is cleared of culpability, or disciplined.

If you represent a buyer and are involved in a situation where your buyer’s non-CAR form offer was not presented, you have the right to file a complaint with the Bureau. The Bureau requests that all complaints be made in writing using their License/Subdivider Complaint form. [See CalBRE Form RE519]

Summarize your concerns using these guidelines:

start from the beginning and de­scribe the events as they occurred;

be specific about whatwas said and whosaid it;

state whowas present during these conversations or acts; and

explain whenand wherethese conversations/acts took place.

Providing documentary evidence is especially important. Legible photocopies of all documents relat­ing to your complaint (i.e. listings, MLS publications, offers, correspondence, etc.) must also be attached to the written complaint.

Upon receipt of the complaint, the Bureau first determines whether the complaint lies within its jurisdiction. If it does, the Bureau determines whether the complaint is a low-, medium- or high-priority violation, based on its impact on the public. High-priority cases involve ongoing perils to the public, such as allegations of embezzlement or fraudulent brokerage schemes. Low-priority cases are those that involve minor violations such as not disclosing your license number on advertising materials.

The Bureau may act as quickly as 24 hours on the complaint, depending on public risk. Their goal is to address all complaints within six months. Disputes arising out of these violations are resolved through California’s Office of Administrative Hearings. Thus, the time involved for these cases will vary based on the calendar of these courts.

If a complaint is found to be actionable, disciplinary actions handed down to licenses are weighted based on the facts of the case, and the harm caused to the client or any other party involved in the complaint. Penalties can range from fines to license revocations.

Things considered in determining the severity of the penalty include:

amount of monetary loss suffered due to the violation; and

the degree of risk that the licensee’s actions posed to the public.

Regardless of the severity, why risk having any part of a disciplinary action bestowed upon you by the Bureau? Keeping in compliance is simple.

As a seller’s agent, you have a fiduciary duty to protect your seller and avoid any conflicts of interest that interfere with your full and faithful advice. Always present all offers, regardless of the form on which they are written — even those presented orally. Your fiduciary duty is satisfied on presentation of the offer.

Only the seller, and never the seller’s agent or their broker, can decide which offer they want to review, accept or reject. An agent or broker may never take it upon themselves to make that decision for the seller.

2 Comments

ft Editorial Staff
on October 16, 2013 at 9:31 am

Dear George,

The BRE takes complaints case by case. When we interviewed them about penalties for this type of violation, they indicated penalties range from fines to license revocations, subject to their investigation.

In the case of a failure to present forms, most agents choose to comply with an unethical request from a listing agent rather than file a complaint with the BRE. However, as you indicate, it’s highly unlikely the typical non-REO seller will favor one form over the other. Thus, the request to use a specific form is easily traceable as a decision of the broker or agent, a blatant BRE violation.

The elephant in the room has not been addressed. What is the impact on a BRE complaint if the terms of the listing instruct the listing broker only to present offers on CAR forms and to reject all others? Obviously, it is not compelling that this requirement originated in the mind of the seller any more than his alleged title and escrow loyalties. It may, however, get the broker off the hook with the BRE with the duty to present all offers. Or does it ????

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